The Advantage of Capitalist Trucks

One argument often made against institutions of complete laissez-faire is that
government intervention is needed to provide commonly used facilities such as
roads and sidewalks and to deal with such mundane externality problems as the
conflict between my desire to play loud music at night and my neighbor's desire
to sleep. One reply sometimes made by libertarians is that most such problems
can be dealt with by proprietary communities. The developer who builds a group
of houses also builds the local streets and sidewalks; each purchaser receives,
along with his house, the right to use the common facilities and to have them
maintained. Each purchaser also agrees, when purchasing, to pay his share of
the cost of such maintainance, according to some preset formula.

Such private arrangements, which are in fact quite common, can deal with
externalities as well. A colleague of mine used to point out that in his
(private) community he could not repaint his front door without the permission
of his neighbors--that being one of the terms of the contract for that
particular community. In a condominium, which is essentially the same
arrangement packed into a single building, the contract is likely to include
procedures for resolving disputes among neighbors as to what behavior in one
apartment inflicts unreasonable costs on adjacent apartments. In any
proprietary community, the contract is likely to contain arrangements by which
the signatories can jointly modify it in order to deal with new
circumstances.

The existence of such institutions raises an interesting question: In what
sense are they not governments? As a British acquaintance put it to me, his
relationship with his condominium association and his local authority are
essentially the same. Each of them has authority over his behavior as a result
of his decision to live in a particular place--an apartment in the condominium
in the local authority. Each imposes rules on him. Each "taxes" him--although
the condominium does not call the money it collects for maintanance and repairs
taxes. Each can change the rules and the taxes imposed on him by similar,
democratic methods--a vote of his fellow citizens in the one case, his fellow
residents in the other. While the condominium association may be a useful
solution to a set of problems, in what sense is it a private solution? Or, to
turn the argument around, if libertarians approve of such institutions when
they are called condominium associations or proprietary communities, why do we
disapprove of them when they are called governments?

One possible answer to this question is to invoke libertarian ideas of natural
rights by arguing that the proprietary community, unlike the government, came
into existence without violating anyone's rights. The developer bought the land
from its owners and resold it to purchasers who had agreed to the
government-like restrictions included in the purchase contract. The local
government, on the other hand, came into existence because, at some point in
time, a majority of the inhabitants (or possibly a majority of the citizens of
some larger political body within which it is located) decided to create
it--thus imposing their rules on everyone already living there, whether or not
he agreed.

That is a possible answer, but I do not think it is one likely to convince many
non-libertarians, nor is it one that I find terribly interesting. The purpose
of this essay is to offer another answer, and one that does not depend on our
particular view of rights. There are good practical reasons why the way in
which the "government-like" institutions came into existence matters, quite
aside from the question of whether anyone's rights were violated in the
process.

To see the reasons, consider the following question: You wish to buy a truck,
and have a choice of two. One was built in Detroit, one was built in the Soviet
Union. Which do you choose?

Most people would choose the capitalist truck. Why? Both are trucks. If they
are identically built, they should function in exactly the same way--why does
their history matter? Why should we care about the ideology of a truck?

The answer, of course, is that the two trucks are not identically built. The
capitalist truck was built under a system of institutions in which people who
build bad trucks are likely to lose money. The communist truck was built under
institutions in which people who build good trucks are likely to lose money,
and often other things as well--since the result of building good trucks is
likely to be not meeting your assigned quota for the month. Even before
checking out the trucks, we have a good reason to expect that the communist
truck will be worse built. In particular, we can expect that it will be
heavier--since quotas were frequently set, not in number of trucks, but in tons
of trucks.

Precisely the same answer can be made for the difference between the
"government" of a condominium or proprietary community and the larger
government within which it is located. The private developer who created the
former had a private incentive to design the best possible political
institutions. What he was selling, after all, was both a house and a share in a
"government." The more attractive the form of the community association
appeared to the purchaser, the higher the price he would be willing to pay for
the house.

It could be argued that a similar constraint applies to the political
institutions that create and modify local governments. The voters, after all,
also want to live under desirable institutions, so the political entrepreneur
who is creating a new local government or modifying an old one also has an
incentive to try to create attractive institutions. That is true to some
degree, but much less than in the case of the proprietary community. There are
reasons why democracy does not work nearly as well as capitalism.

For one thing, the individual voter has very little incentive to try to find
out whether the proposed political changes are actually in his interest, since
his vote has only a small chance of determining what actually happens. The
individual purchaser, on the other hand, "votes" by buying or not buying a
house in the community. If he votes no, he will not be under that particular
set of institutions, if he votes yes he will, so he has a substantial incentive
to investigate the institutions before he buys--or at least to check out
current property values and the current condition of common facilities in
previous communities sold by the same developer. That argument is one of the
reasons why not only communist trucks but even democratic socialist trucks are
likely to run worse than capitalist trucks.

One of the most important characteristic of a government is its size. The
average American lives under a local government ruling at least tens of
thousands, perhaps hundreds of thousands, of citizens. The average inhabitant
of a condominium or proprietary community, I would guess, lives under a
"private government" of about a hundred citizens. I doubt this is an accident.
My suspicion is that local governments are bigger than proprietary communities
for much the same reason that communist trucks are heavier than capitalist
trucks.

The preference for capitalist trucks is not merely a matter of libertarian
ideology. A sensible communist would also prefer capitalist trucks. Indeed,
communists who had the opportunity to shop in the West--an opportunity
frequently given as a reward for party loyalty and other communist
virtues--routinely demonstrated their preference for capitalist goods by buying
them in as large a quantity as possible. More recently, what used to be the
Communist world has demonstrated its preference for capitalist trucks on a
somewhat larger scale.